Types of Services Provided

The type of services offered is a characteristic used to differentiate institutional providers. Services can be classified as either general or special care. Facilities that provide specialty care offer a limited scope of services, such as those targeted to specific disease entities or patient populations. Examples of special care facilities are those providing psychiatric care, burn care, children’s care, women’s and infants’ care, and oncology care. Alternatively, facilities such as general hospitals provide a wide range of services to multiple segments of the population.

Length of Direct Care Services Provided

Another characteristic that is used to differentiate healthcare organizations is the duration of the care provided. According to the American Hospital Association (AHA) (2009), most hospitals are acute care facilities giving short-term, episodic care. The AHA defined an acute care hospital as a facility in which the average length of stay is less than 30 days. Chronic care or long-term facilities provide services for patients who require care for extended periods in excess of 30 days. In acute care institutions, patients are discharged as soon as their conditions are stabilized. An example of a long-term care facility is a geriatric organization that provides care services from onset of impairment until death. Many institutions have components of both short-term and long-term services. They may provide acute care, home care, hospice care, ambulatory clinic care, day surgery, and an increasing number of other services, such as day care for dependent children and adults or focused services such as Meals-on-Wheels. The term healthcare network refers to interconnected units that either are owned by the institution or have cooperative agreements with other institutions to provide a full spectrum of wellness and illness services. The spectrum of care services provided are typically described as primary care (first-access care), secondary care (disease-restorative care), and tertiary care (rehabilitative or long-term care). Table 7-1 describes the continuum of care and the units of healthcare organizations that provide services in the three phases of the continuum.

Ownership

Ownership is another characteristic used to classify healthcare organizations. Ownership establishes the organization’s legal, business, and mission-related imperative. Healthcare organizations have three basic ownership forms: public, private non-profit, and for-profit. Public institutions provide health services to individuals under the support and/or direction of local, state, or federal government. These organizations must answer directly to the sponsoring government agency or boards and are indirectly responsible to elected officials and taxpayers who support them. Examples of these service recipients at the federal level are veterans, members of the military, Native Americans and prisoner healthcare organizations. State-supported organizations may be health service teaching facilities, chronic care facilities, and prisoner facilities. Locally supported facilities include county-supported and city-supported facilities. Table 7-2 shows how several common healthcare organizations are classified.

Private non-profit (or not-for-profit) organizations—often referred to as voluntary agencies—are controlled by voluntary boards or trustees and provide care to a mix of paying and charity patients. In these organizations, excess revenue over expenses is redirected into the organization for maintenance and growth rather than returned as dividends to stockholders. These organizations are required to serve people regardless of their ability to pay. Non-profit organizations located in impoverished urban and rural areas are often economically disadvantaged by the amount of uncompensated care that they provide. In 2007, roughly 60% of uncompensated care in the United States was provided by 14% of hospitals (United States Department of the Treasury, 2009). Some states, such as New York, have created charity pools to which all non-profit organizations in the state are required to contribute to offset financial problems of the disadvantaged institutions. Historically, non-profit organizations have been exempt from paying taxes as they commit to providing an important community service. The owners of such organizations include churches, communities, industries, and special interest groups such as the Shriners. It is important for nurses to understand the impact of ownership on how organizations are structured, the services they provide, and the patients they serve.

For-profit organizations are also referred to as proprietary or investor-owned organizations. These organizations operate with the specific intent of earning a profit by providing healthcare services to individuals who can afford to pay for these services. Organizations such as private or public insurers who provide healthcare insurance coverage are known as third-party payers. Owners may be individuals, partnerships, corporations, or multisystems. Many for-profit organizations, like the not-for-profit ones, receive supplementary funds through private and public sources to provide special services and research. This funding allows them to provide financial assistance to patients who can afford ordinary care but are not in a position to finance catastrophic occurrences such as vital organ failure, birth of premature or sick infants, or transplant operations.

Multihospital systems, which are defined as two or more institutional providers having common owners, represent a significant development that has taken place in the past two decades. Investor-owned, multihospital systems are becoming increasingly popular. Nursing homes, home care, psychiatric services, and health maintenance organizations (HMOs) are commonly units in such systems.

Research has shown that ownership can impact efficiency and quality. Although hospital ownership is defined legally, there are significant differences within the three sectors related to teaching status, location, bed size, and corporate affiliation. For-profit hospitals, which represent approximately 15% of the beds in short-term acute care hospitals, are typically nonteaching, suburban facilities with small to medium bed capacity and have the ability to access group purchasing cooperatives that lower non-salary expenses. For-profit hospitals tend to have higher hospital charges and lower wage and salary costs that most likely represent an aggressive approach to maximizing return on investment.

Ownership results in differential treatment relative to regulatory requirements. Public and non-profit hospitals are tax exempt and have a concomitant responsibility to provide mandated community service such as delivering care to the poor and indigent. Thus one can expect operational differences between and among the three ownership sectors. Ownership impacts the organization’s level of effort in regard to the provision of uncompensated care. Those organizations with taxing authority or direct support from local or state government have a clear mandate to care for indigent patients and receive at least some level of dedicated funds to do so. For-profit hospitals offer fewer unprofitable services and actively seek to avoid providing uncompensated care and are required to pay taxes that can have an impact on their bottom line. To keep their non-profit status, these facilities must make a good-faith effort to provide community service and charity care. Unfortunately, the literature provides conflicting and inconclusive evidence in regard to the impact of ownership on hospital financial performance.

Teaching Status

Teaching status is a characteristic that can differentiate healthcare organizations. The term teaching institution is applied to academic health centers (those directly affiliated with a school of medicine and at least one other health profession school) and affiliated teaching hospitals (those that provide only the clinical portion of a medical school teaching program). Studies have shown that although care is usually more costly at teaching hospitals than at non-teaching hospitals (estimates range from 12% more expensive in Canada to 27% in the United States), teaching hospitals generally offer better care because of their access to state-of-the-art technology and researchers. The higher costs of teaching hospitals have been attributed to the unique missions these institutions tend to pursue, including graduate medical education, biomedical research, and the maintenance of stand-by capacity for highly specialized patient care (Flatt & Rahal, 2006).

Traditionally, teaching hospitals have received government reimbursement to cover these additional costs. There are, however, intrinsic costs of providing a medical training program that are not fully reimbursed by the government. Maintaining a teaching program places a financial burden on hospitals relative to the direct cost of the program and the indirect cost of the inefficiencies surrounding the training process. These inefficiencies include (1) salaries of physicians who supervise students’ care delivery and participate in educational programs such as teaching rounds and seminars; (2) duplicated tests or procedures; and (3) delays in processing patients related to the teaching process. Currently, these expenses are reimbursed based on a formula that considers the cost of caring for the low-income and uninsured patients who populate most academic teaching programs. This reimbursement is being revised as states reduce subsidies for the education of physicians. Hospitals make strategic decisions about their level of participation in physician training. Because of the additional costs, few for-profit hospitals sponsor teaching programs. Teaching hospitals are usually located close to their affiliated medical school. They tend to be larger and located in more urban and economically depressed inner-city areas than their non-teaching counterparts. Teaching hospitals, therefore, tend to exhibit weaker economic performance compared with non-teaching hospitals.

Accreditation Status

Whether or not a healthcare organization has been accredited by an external body as having the structure and process necessary to provide high quality care is another characteristic that can be used to distinguish one organization from another. Private organizations play significant roles in establishing standards and ensuring care delivery compliance with standards by accrediting healthcare organizations. Examples of these organizations are The Joint Commission and The National Committee for Quality Assurance (NCQA). The Joint Commission provides accreditation programs for ambulatory care, behavioral health care, acute care and critical access hospitals, laboratory services, long-term care, and hospital-based surgery. The NCQA is a non-profit organization that accredits, certifies, and recognizes a wide variety of healthcare organizations, services, and providers. More information on accrediting organizations is provided in the “Accrediting Bodies” section on pp. 125-126.

Consolidated Systems

Consolidated systems tend to be organized along five levels. The first level includes the large national hospital companies, most of which are investor owned. The second level involves large voluntary affiliated systems, which provide members with access to capital, political power, management expertise, joint venture opportunities, and links to health insurance services or, as in Canada, to a national healthcare coverage program. The third level involves regional hospital systems that cover a defined geographic area, such as an area of a state. The fourth level involves metropolitan-based systems. The fifth level is composed of the special interest groups that own and operate units organized along religious lines, teaching interests, or related special interests that drive their activities. This level often crosses over the regional, metropolitan, and national levels already described. Through the creation of multiunit systems, an organization has greater marketing, policy, and contracting potentials.

Networks

Healthcare markets with 100,000 or more residents are generally served by one to three health networks. The networks usually follow one of three organizational models: public utilities, for-profit businesses, or loose alliances. Public utility models are organized and governed just like today’s public utilities (e.g., the county water department). Their aim is serving large regional populations. In most markets, two or three competing markets have emerged that require significant capital, causing many traditional not-for-profit providers to shift to for-profit status. Loose alliances take the shape of loosely connected “virtual” networks that emulate integrated health systems through contracts and linked computer systems.